29-Jan-2015 1:20 PM

Cambodia aviation Part 1: China visitor surge makes Cambodia the fastest growth market in SE Asia

Analysis

Cambodia's aviation market grew by 13% in 2014, the fastest rate in Southeast Asia, driven by a surge in traffic from China. Cambodia has now experienced double digit passenger growth for five consecutive years, an impressive but little known achievement.

Passenger traffic across Cambodia's three airports increased by 13% to 5.7 million in 2014 as Siem Reap surpassed the 3 million mark for the first time. The growth rate slowed from 18% in 2013 but outpaced other Southeast Asian markets as the Cambodian tourism sector seemed to benefit from turmoil among its neighbouring destinations. Tourist arrivals at Cambodia's two international airports were up by about 13%, driven by an over 20% increase in arrivals from China.

This is the first in a two-part series of analysis reports on the Cambodian market. This report will look at the overall market and expansion by foreign carriers. The second report will look at the surge in start-up activity in the Cambodian airline sector, which should drive further passenger traffic growth in 2015.

Summary

Cambodia's aviation market experienced a 13% growth in 2014, the fastest rate in Southeast Asia, driven by an increase in traffic from China.
Passenger traffic across Cambodia's three airports reached 5.7 million in 2014, with Siem Reap surpassing 3 million passengers for the first time.
Cambodia's aviation market has seen double-digit passenger growth for five consecutive years, outpacing other Southeast Asian markets.
Siem Reap's passenger traffic has increased by 140% in the last five years, making it one of the fastest-growing airports in Asia.
Phnom Penh recorded double-digit growth for the fourth consecutive year, with passenger traffic increasing by 11% in 2014.
Chinese airlines have been the main beneficiaries of the growth in the Cambodia-China market, accounting for approximately 75% of seat capacity between the two countries.

Cambodia Airports records 13% increase in passenger traffic for 2014

Cambodia Airports handled 5.73 million passengers in 2014, representing a 13% increase over the 5.08 million passengers handled in 2013. Passenger traffic has grown by over 50% since 2011 as Cambodia Airports recorded 18% growth in both 2012 and 2013.

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For three years running Cambodia has been one of the fastest growing markets in Asia. While several other Southeast Asian markets also grew at double digit clips in 2012 and 2013 most markets saw a significant slowdown in 2014.

For example, Airports of Thailand recorded 3% passenger growth for 2014 compared to 16% in 2013. Malaysia Airports reported 5% passenger growth in 2014 compared to 18% in 2013. Singapore passenger traffic grew by only about 1% in 2014 while the Vietnamese and Indonesian markets grew by an estimated 11% and 5% respectively.

Passenger traffic in Cambodia has now quadrupled sine the turn of the century and has more than doubled since 2009. Even factoring in the dip in traffic during the global financial crisis of 2008 and 2009 traffic has increased over the last decade at an average clip of about 17% per annum.

Cambodia Airports total passenger figures: 2005 to 2014

Siem Reap passenger traffic has increased by 140% in only five years

The Cambodian tourist town of Siem Reap, which is the gateway to Angkor Wat and other famous temples, recorded 13% passenger growth in 2014 to 3.02 million. The Siem Reap Airport celebrated the 3 million annual passenger milestone on 30-Dec-2014.

Total passenger traffic at Siem Reap has increased by 140% since 2009, when the airport handled only 1.26 million passengers. Siem Reap has been one of the fastest growing small to medium size airports in Asia over this period, recording growth of 26% in 2010, 15% in 2011, 22% in 2012 and 20% in 2013.

Siem Reap annual passenger traffic: 2009 to 2014

Siem Reap is currently operating above its designed capacity of 2.5 million passengers per annum but is about halfway through a major airport terminal expansion project designed to double the airport's capacity to 5 million. The project was launched in Jan-2014 and is expected to be completed in early 2016.

Phnom Penh records double digit growth for fourth consecutive year

Traffic at the Cambodian capital Phnom Penh increased by 11% in 2014 to 2.66 million passengers. Growth at Phnom Penh has been more modest than Siem Reap but has still been in the double digits for four consecutive years. Passenger growth peaked at 15% in 2013.

Phnom Penh annual passenger traffic: 2009 to 2014

Cambodia Airports also has begun an expansion project at Phnom Penh which is designed to double capacity to 5 million passengers per annum. There are also plans to build a new airport outside Phnom Penh to accommodate future growth requirements. Siem Reap will likely reach the 5 million mark sooner than Phnom Penh but there is space at Siem Reap for further expansion while Phnom Penh is space constrained and will eventually need a new airport.

Cambodia is primarily an inbound market but the outbound market is also starting to show some growth as the middle class expands. Cambodians accounted for 23% of international passenger traffic at Phnom Penh in 2014 compared to 20% in 2013, according to Cambodia Airports data. Chinese nationals accounted for 16% passenger traffic at Phnom Penh both years, making China the largest source market.

Phnom Penh international passenger share based on nationality: 2014 vs 2013

Phnom Penh is a business and leisure destination while Siem Reap is entirely an inbound leisure market. Cambodians accounted for less than 2% of international passenger traffic at Siem Reap, which has a population of less than 200,000.

China drives growth at Siem Reap

China and Korea are the largest source markets for Siem Reap, with Chinese and South Korean residents each accounting for 25% of international passengers in 2014. But China is a much faster growing market.

Seam Reap international passenger share based on nationality: 2014 vs 2013

Chinese resident traffic at Siem Reap grew by 23% in 2014 while Korean resident traffic was flat. Over the last five years Chinese resident traffic has grown at an average clip of 63% per annum while Korean resident traffic have increased at a clip of 24% per annum.

Japan, which is the third largest source market at Siem Reap, has grown at a much more modest 7% average rate over the last five years. China, Korea and Japan combined account for over 60% of international passengers at Siem Reap.

Siem Reap international passenger traffic based on nationality, 2009 to 2014

Based on Cambodia Ministry of Tourism (MOT), visitor arrival numbers at Siem Reap Airport increased by 15.5% through the first 11 months of 2014 to 1.202 million and at Phnom Penh Airport by 10.1% to 826,000.

Cambodia's China visitor numbers surge as other Southeast Asian markets see declines

Cambodia's MOT data does not provide a break down by nationality of air arrivals but does provide a breakdown of total arrivals, which also includes road and sea. China arrivals increased by 22% to 507,000 in the first 11 months of 2014.

Thailand also generated 22% growth into Cambodia but on a lower base and most Thais cross the border by land. Most passengers flying from Cambodia to Bangkok, which accounts for about 22% of international seat capacity from Cambodia, are heading to destinations beyond Thailand.

Vietnam was the largest origin market overall, with 804,000 arrivals, but a large portion of Vietnamese also cross into Cambodia by land. Vietnam currently accounts for about 25% of international seat capacity from Cambodia.

Cambodia 10 source markets for visitor arrivals: 11M2014 vs 11M2013

Cambodia was able to attract a significant number of Chinese tourists in 2014 who were initially planning to travel to Thailand, Malaysia or Singapore. Demand for holidays to Thailand was impacted through the first nine months of 2014 by the civil unrest in Bangkok while Malaysia demand was impacted following the Mar-2014 Malaysia Airlines MH370 incident.

Singapore was impacted as most of its Chinese visitors to Singapore combine Singapore with Malaysia or Thailand. As CAPA highlighted in a Jul-2014 report analysing Cambodia's passenger numbers for 1H2014:

Cambodia's tourism authorities see the crisis in other Southeast Asian countries as an opportunity and have been doubling up on efforts to promote Cambodia as a destination to the Chinese. Cambodia, particularly the temples around Siem Reap, are an ideal destination for the growing Chinese middle class, many of whom are travelling overseas for the first time as their discretionary incomes rise.

Cambodia is close to China, cheap and culturally relatively similar, making the Chinese comfortable with eating and travelling around Cambodia. Another advantage for Cambodia is most Chinese tourists holidaying in Cambodia visit only Cambodia.

As Thailand, Malaysia and Singapore are overall much bigger destinations for the Chinese, Cambodia has only had to attract a small fraction of Chinese residents who have been foregoing holidays in other Southeast Asian countries.

Thailand recorded 4.6 million Chinese visitors in 2014, equalling the total figure from 2013 as a recovery in 4Q2014 offset a decline through the first nine months. Malaysia reported an 11% drop in Chinese visitors through the first 10 months of 2014 to 1.4 million while Singapore reported a 26% drop through the first 11 months to 1.6 million. (Malaysia, Singapore and Cambodia have not yet reported full-year visitor figures.)

Seven Chinese airlines currently serve Cambodia

Chinese airlines have so far been the main beneficiaries of the rapid growth in the Cambodia-China market. Of the 27 foreign airlines which currently operate scheduled passenger services to Cambodia, seven are Chinese - Air China, China Eastern, China Southern, Shandong, Spring, Tianjin and Xiamen.

Cambodia Angkor Air and Sky Angkor Airlines have also been pursuing expansion in China through a combination of new scheduled and charter flights. But Chinese carriers currently account for approximately 75% of seat capacity between the two countries, according to CAPA and OAG data.

Cambodia Angkor has traditionally focused on Vietnam and the domestic market while Sky Angkor, previously known as Skywings Asia Airlines, has focused on the Korea market.

The outlook for Cambodia Angkor and Sky Angkor along with Cambodian start-up carriers Bassaka Air and Cambodia Bayon Airlines, both of which plan to launch services to China in 2015, will be analysed in the second part of this report.

Cambodia is also served by two Hong Kong-based carriers, Dragonair and Hong Kong Airlines. Hong Kong Express plans to launch services to Cambodia in Oct-2015 with three weekly flights to Siem Reap, becoming the first LCC in the Cambodia-Hong Kong market. (Hong Kong Airlines currently serves Phnom Penh while Dragonair serves both Phnom Penh and Siem Reap.)

Hong Kong is a very small source market, accounting for only 8,000 visitors in the first 11 months of 2014. But Hong Kong is well placed as a hub to serve the Cambodia-China market as well as other large source markets that do not have any non-stop services to Cambodia, such as Japan, Canada and the US.

Passengers heading to Cambodia from Japan and North America also frequently transit in Taiwan, Korea and Vietnam. Cambodia is currently served by three Taiwanese carriers - China Airlines, EVA Air and V Air - and three Korean carriers - Air Busan, Asiana and Korean Air. (Based on OAG schedules for the week commencing 26-Jan-2015.)

All Nippon Airways (ANA) could become the first Japanese carrier in the Cambodian market as it has been looking to launch services to Cambodia from Oct-2015 as part of its Southeast Asia expansion strategy.

Southeast Asia is well served but North Asia is growing faster

Overall 15 North Asian passenger airlines currently serve the Cambodian market. Of the other 12 foreign passenger carriers currently serving Cambodia 11 are from within Southeast Asia - Bangkok Airways, Cebu Pacific Air, Lao Airlines, Jetstar Asia, Malaysia AirAsia, Malaysia Airlines, SilkAir, Thai AirAsia, Thai Airways, VietJet Air and Vietnam Airlines.

As the Southeast Asian carriers generally have more capacity in Cambodia than its North Asian counterparts Southeast Asia overall accounts for about 66% of current international seat capacity compared to 33% for North Asia. The only airline from outside East Asia serving Cambodia is Qatar Airways, which operates one daily flight from Doha to Phnom Penh via Ho Chi Minh.

Vietnam Airlines is by far the largest carrier in Cambodia, with 78 weekly return flights and about a 16% share of current international seat capacity. It also owns a stake in Cambodia Angkor Air.

Bangkok Airways is the second largest foreign airline with 75 weekly return flights and about a 12% share of international seat capacity. Bangkok serves as the main transit point for Europe, which accounted for about 16% of total visitor arrivals in Cambodia in the first 11 months of 2014.

Bangkok Airways provides an important offline link to Cambodia for several carriers in Europe, the Middle East and Asia-Pacific. Its Cambodia flights currently carry the code of six foreign carriers: airberlin, Air France, Etihad, Japan Airlines, Qantas and Qatar Airways. Thai Airways only codeshares with Lufthansa on its Cambodia flights while Vietnam Airlines only codeshares with Cambodia Angkor Air.

Cambodia international capacity share (% of seats) by carrier: 26-Jan-2015 to 1-Feb-2015

But North Asia is the main growth market. Seat capacity to Singapore has dropped over the last year (due to the withdrawal of Tigerair) while capacity to the Philippines has been flat.

Thailand capacity is up by 4% and to Vietnam is by 8%. Capacity to Malaysia is up 18% but on a smaller base. (All figures based on CAPA and OAG data for the week commencing 26-Jan-2015 compared to the week commencing 27-Jan-2014.)

Cambodia's domestic market is small but growing

Cambodia is primarily an international market although there is a small but growing domestic market. Phnom Penh handled 2.38 million international passengers and 240,000 domestic passengers in 2014. There were also slightly over 40,000 transit passengers. Domestic passenger traffic was up 50% compared to 2013.

Siem Reap had a similar split with 290,000 domestic passengers, 2.71 million international passengers and 16,000 transit passengers in 2014. Domestic was the fastest growing segment in 2014 - albeit from a small base - with growth of 56%.

Cambodia Airports also operates a third airport in the small coastal town of Sihanoukville which handled 43,000 passengers in 2014 compared to about 20,000 in 2013. Sihanoukville has international facilities but only handled about 300 international passengers in 2014.

Sihanoukville is currently only served from Phnom Penh and Siem Reap. The Phnom Penh-Siem Reap route accounts for the majority of domestic passengers.

In total there were about 286,000 domestic passengers in Cambodia in 2014 compared to over 5.1 million international passengers. A majority of domestic passengers are foreign tourists travelling between Cambodia's main sights. (Note: the Cambodia Airports domestic passenger total is 573,000 because it counts each domestic passenger twice as all enplanements and deplanements are at airports in its portfolio.)

Cambodia is poised for further growth

Cambodia has seen phenomenal passenger growth over the last several years but is only scratching the surface. It has the potential for further rapid growth over the next several years.

Cambodia's tourism sector is still relatively undeveloped. Cambodia is working to upgrade infrastructure, which is particularly lacking outside Phnom Penh and Siem Reap. The upside potential is huge if Cambodia makes the right investments in its emerging tourism sector. Thailand and Malaysia each currently attract over five times as many visitors as Cambodia while Singapore attracts three times as many.

Cambodia is particularly well positioned to tap the rapid growth in outbound travel from China. Cambodia should be able to continue posting the highest passenger growth rates in Southeast Asia, attracting more capacity from foreign airlines along with expansion from its own dynamic airline sector.

Part 2: The second report in this series will review the colourful and fast-expanding Cambodian airline sector.